A Dutch retail pension fund has ditched nearly one-third of companies in its portfolio for environmental, social, and governance (ESG) reasons, thanks to a new benchmark.
Pensioenfonds Detailhandel ($23 billion) has developed an ESG-focused index with FTSE Russell and BlackRock that seeks to enhance its sustainability policy. The result: The fund slashed 500 of the 1,600 stocks in its public equity investments. In doing so, it has halved its holdings in carbon emissions and fossil fuel stocks.
The FTSE Russell SDG Aligned index follows the policies set by the UN’s Sustainable Development Goals statement. Investment weightings will be adjusted by FTSE Russell according to the provider’s ESG screening on topics such as climate change, human rights, and working conditions.
“With this innovative approach, we support investors in their choice to include sustainable investment objectives in all aspects of their portfolio,” said Waqas Samad, FTSE Russell’s chief executive officer.
Henk Groot, the retail sector fund’s chief investment officer, said Detailhandel will add or cut allocations to stocks in the index based on their benchmarked performance. This simplifies decision-making in active public equity strategies.
“The index has been developed in such a way that on the one hand the sustainable scores increase, and on the other hand the return and risk profile remains the same or even improves,” he said. “All this in the conviction of the pension fund that socially responsible investing adds value and reduces risk in the portfolio.”
This follows Detailhandel’s promise last year to bulk up its sustainable investments after plan members urged these changes in a survey. It said it had been prepping for the new index’s launch since 2017.
“We first started looking for providers who could help us with the development of the index,” Groot said. “It soon became apparent that FTSE Russell was the only one able to link our specific sustainability themes to the sustainable development goals of the United Nations. “
Detailhandel’s investments in the SDG index total $6.5 billion.